EIU Global Forecasting Service

Global trade growth will begin to slow from 2018

January 18th 2018

The Economist Intelligence Unit estimates that global trade growth accelerated in 2017 to 4.6%, its fastest rate since 2011. Reflecting the broad-based acceleration in the global economy, trade growth accelerated in both OECD and non-OECD economies in 2017, to 4% and 5.1% respectively, up from 2.1% and 2.5% in 2016. However, we have revised our 2018 forecast for global trade growth to 4.3%, up from 3.5%, in light of the more positive outlook for the Chinese economy. In turn, we expect a more favourable trading environment for a number of countries, especially those suppliers of raw materials and industrial inputs to the Chinese economy, such as Australia and South Korea. More broadly, this will benefit trade across a number of countries, given China's economic size and prominent position in global supply chains.

On the assumpton that the US president, Donald Trump, will make only modest adjustments to trade policy, we expect global trade growth to continue to slow in 2019-22, to an average of 3.6% a year. This forecast is relatively cautious, given that it was not uncommon for world trade to expand at roughly double the pace of global GDP prior to the global financial crisis. We do not expect global trade growth to reach the rates seen in the 2000s for three reasons. First, we assume that a slight rise in protectionism will inhibit trade throughout the forecast period. Governments around the world have intro‑duced a slew of protectionist measures over the past couple of years (largely driven by a desire to support domestic industries in a period of lacklustre economic growth); we expect this pattern to continue even as the global economy grows more impressively. Second, we expect a structural slowdown in global trade as the integration of global supply chains abates. Finally, we expect a mild recession in the US in 2020, which will pull down global trade.